Business and Professional Leasing Pty Ltd v Dannawi

[2008] NSWSC 902

CITATION:	Business & Professional Leasing Pty Ltd v Dannawi; BPL (NSW) Pty Ltd v Blue Robe Petroleum Pty Ltd; BPL (NSW) Pty Ltd v Macarounas [2008] NSWSC 902
HEARING DATE(S):	21-23 May 2008
JUDGMENT DATE :	5 September 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Plaintiff financier entitled to verdict against all three defendants. However two defendants succeed on cross-claim against plaintiff for same amount.
CATCHWORDS:	TRADE & COMMERCE [143]- Plaintiff as financier and lessor entered into agreements with various defendants leasing pizza ovens and associated equipment for the term of 60 months- Plaintiff bought lease property from suppliers who falsely represented to the defendants that there is a "6 month trial period"- An ineffectual deed of assignment proffered later- Defendants after 6 months sought to be released from their obligations- Trade Practices Act 1974 (Cth) s 73- Whether plaintiff as "linked credit provider" is liable- Suppliers must be corporations- Prices of two separate identical items in one single transaction ought not be aggregated in determining whether it is a consumer sale- Inference drawn that supplier regularly referred persons to the plaintiff for credit- Section 73 does not empower the court to rescind the lease- Defendants' loss suffered is the amount payable to the plaintiff under the lease.
LEGISLATION CITED:	Civil Procedure Act 2005, ss 98, 100 Trade Practices Act 1974 (Cth), ss 4B, 4C, 51A, 68, 70, 71, 73, 75B, 82
CASES CITED:	ACCC v Michigan Group Pty Ltd [2002] FCA 1439 Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1985) 7 FCR 509 Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162 CLR 395 Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 NMFM Property Pty Ltd v Citibank Ltd (2000) 107 FCR 270 Petersen v Moloney (1951) 84 CLR 91 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 Watts v Rake (1960) 108 CLR 158
PARTIES:	2739/05: Business & Professional Leasing Pty Ltd (Plaintiff/First Cross-Defendant) Samir Dannawi (Defendant/Cross-Claimant) Brett Hilder (aka George Terence Hilder) (Second Cross-Defendant) Maxine Tareha (Third Cross-Defendant) The Original Mama's Pizza & Ribs Pty Ltd (Fourth Cross-Defendant) Michael Stupar (Fifth Cross-Defendant) Business Acceptance Corporation Pty Ltd (Sixth Cross-Defendant) 3137/05: BPL (NSW) Pty Ltd (Plaintiff/First Cross-Defendant) Blue Robe Petroleum Pty Ltd (Defendant/Cross-Claimant) George Terence Hilder (Second Cross-Defendant) Milan Mrkodic (Third Cross-Defendant) The Original Mama's Pizza & Ribbs Pty Ltd (Fourth Cross-Defendant) Michael Stupar (Fifth Cross-Defendant) Business Acceptance Corporation Pty Ltd (Sixth Cross-Defendant) 3260/05: BPL (NSW) Pty Ltd (Plaintiff/First Cross-Defendant) Michael Stephen Macarounas t/as Mr Macs Food Store (Defendant/Cross-Claimant) George Terence Hilder (Second Cross-Defendant) Yvette Baron (Third Cross-Defendant) The Original Mama's Pizza & Ribs Pty Ltd (Fourth Cross-Defendant) Michael Stupar (Fifth Cross-Defendant) Business Acceptance Corporation Pty Ltd (Sixth Cross-Defendant)
FILE NUMBER(S):	SC 2739/05; 3137/05; 3260/05
COUNSEL:	J Stoljar and J K Taylor (P) J Fernon SC and D J Williams (D) Fifth Cross-Defendant in person
SOLICITORS:	S Moran & Co (P) Kheir & Associates (D) Fifth Cross-Defendant in person

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Friday 5 September 2008

2739/05 – BUSINESS & PROFESSIONAL LEASING PTY LTD v DANNIWI
3137/05 – BPL (NSW) PTY LTD v BLUE ROBE PETROLEUM PTY LTD
3260/05 – BPL (NSW) PTY LTD v MACAROUNAS

JUDGMENT

1 HIS HONOUR: These three matters which were heard together raise common questions of fact and law.

2 Basically, the defendants operate small retail grocery businesses or convenience stores, in the case of Mr Macarounas a store attached to a petrol service station.

3 Each of the defendants was persuaded by an entrepreneur linked with businesses called The Original Poppa’s Pizza and Ribs (Poppa’s Pizza) or The Original Mama’s Pizza and Ribs Pty Ltd (Mama’s Pizza) that he or it should install a pizza heating oven and associated equipment. Each thought that the oven was on six months’ trial.

4 The oven was said to be a failure and none of the defendants wished to retain it.

5 However, the way these entrepreneurs had dealt with the matter was to sign up each of the defendants to a finance agreement with the plaintiff under which each defendant leased a “pizza system”. In the case of Mr Macarounas, this was shown as a lease of equipment worth $25,300 for 60 months at an interest rate of 21% with a total of $43,103.-40. The finance company paid the entrepreneur $23,000 and brokerage to a Mr Stupar.

6 The entrepreneur advanced to each of the defendants the first six months’ payments so that there was in fact a six month free trial.

7 At the end of the “trial period”, the defendants had no interest in proceeding with the deal. Apart from anything else, the supply of the pizzas to be heated in the oven was unsatisfactory and, when the oven was used, it failed to heat the pizzas properly.

8 The plaintiff finance company took the view that those problems had nothing to do with it and sued the defendants. Although the title to these proceedings would give the impression that there are two plaintiffs, the company Business & Professional Leasing Pty Ltd changed its name to BPL (NSW) Pty Ltd about 19 December 2003 so that there is only one plaintiff (BPL).

9 Having set out the basic scenario, I should now detail the pleadings and vital facts in each of the three cases before me.

10 In 2739/05, the plaintiff finance company filed a statement of liquidated claim in the District Court at Parramatta claiming $44,648.45 plus interest. The claim was that the defendant Samir Dannawi had leased from the plaintiff a new Pyros pizza system and a slurpy machine by contract of 20 December 2002. The contract was said now to have been terminated for breach and that the moneys claimed were owing plus interest of $2,911.32 and continuing interest under cl 19(b) of the contract at the rate of 20% per annum or $24.46 per day.

11 The defence was that: (a) when signed, the agreement was for 6 months, not 60 months; (b) non est factum; (c) the plaintiff had failed to mitigate its loss; (d) the agreement was brought about by the misrepresentations of the entrepreneurs as the plaintiff’s agents; (e) the plaintiff was a linked credit provider to the entrepreneurs and the defendant relied on s 73 of the Trade Practices Act 1974 (Cth); (f) the leased goods were not as described nor were they of merchantable quality as impliedly warranted by statute; (g) as the agreement had been terminated, there was no liability under it save for accrued liabilities; (h) the agreement was unconscionable and ought not to be enforced; (i) part of the claim was bad as claiming a penalty; and (j) there was a cross-claim that the agreement had been rescinded or should be rescinded for misrepresentation.

12 The reply traversed these defences.

13 In 3137/05, the plaintiff sued in the Sydney District Court on an agreement of 20 December 2002 for the leasing of two Pyros pizza systems. It claimed that it had purchased the goods for $42,900 and that, with leasing charges for a 60 month period, it was owed a total of $63,342.76 plus interest accruing at 20%. It alleged that the agreement had been determined for breach on 23 September 2003.

14 The defences were similar to those in 2739/05.

15 In 3260/05, an ordinary statement of claim was issued out of the Local Court at Sydney based on a rental agreement made 28 March 2003 in respect of a Wisco pizza system. The agreement was terminated for default on 13 April 2004 and it was claimed the defendant owed $37,356.28 plus continuing interest at 20%.

16 In 2739/05, there was a cross-claim filed by the defendant against the plaintiff (first cross-defendant), Brett Hilder (also known as George Terence Hilder) (second cross-defendant), Maxine Tareha (misnamed “Tarema”) (third cross-defendant) and The Original Mama’s Pizza and Ribs Pty Ltd (Mama’s Pizza) (fourth cross-defendant).

17 In 3137/05, there was a cross-claim against the same people save that Milan Mrkodic was sued in lieu of Ms Tareha.

18 In 3260/05, there was a cross-claim against the same people save that Yvette Baron replaced Ms Tareha.

19 Later the cross-claims were amended to add Michael Stupar as a fifth cross-defendant and Business Acceptance Corporation Pty Ltd as a sixth cross-defendant.

20 The gravamen of the cross-claims were that there had been false and misleading conduct under the Trade Practices Act.

21 The third cross-defendants were not served and the fourth cross-defendant was wound up. The second-cross defendant was present and was called as a witness, but did not formally appear. The other cross-defendants appeared.

22 In due course, all matters were removed into this Court and were heard together, the evidence in one being evidence in all.

23 The matters were heard on 21, 22 amd 23 May 2008. Mr J Stoljar and Ms J K Taylor of counsel appearing for the plaintiff, Mr J Fernon SC and Mr D J Williams appearing for the defendants and Mr M Stupar, a broker and the fifth cross-defendant, appearing in person.

24 I might note at the outset that the defence based on the allegation that the contracts were signed for 6 months not 60 months soon fell away.

25 The defence was not abandoned and some evidence was led, but the allegation was contrary to the expert handwriting evidence as well as to other evidence. The cross-examination of the defendants showed that at the very least they were naïve in signing the documents. Mr Macarounas, indeed, noticed the reference to 60 months and asked about it.

26 It seemed to me that the allegations came about from confusion stemming from the evidence of the six month trial period and there was no alteration of the documents after they were signed so far as the term of lease was concerned.

27 However, as will appear hereafter, the rental agreements were signed on reliance of representations that after a six month trial, the agreement could be terminated without any ongoing liability.

28 Again the non est factum defence could not run. The evidence clearly showed that Mr Dannawi and Mr Nader (the principal of Blue Robe Petroleum Pty Ltd) did not even read the documents they signed before they were sent to the finance company. Mr Dannawi said that his skills in English were not too wonderful at the time. However, none of the principals of the defendants were unable to read English and each had had some experience in business, albeit as a small trader.

29 The defence of unconscionability was withdrawn on the first day of hearing.

30 I should note that there is in evidence as DX 207, proceedings in the Federal Court brought by the Australian Competition & Consumer Commission (ACCC) against the entrepreneurs and others. Those proceedings, inter alia, examined the case of Mr Macarounas.

31 The result was a hearing on 12-20 March 2007, reasons for judgment on 18 March 2008 and an order entered on 19 May 2008 in which the entrepreneurs were disqualified from selling ovens or heating devices to convenience stores for seven years.

32 The Federal Court (Madgwick J) made findings as against the entrepreneurs with respect to Mr Macarounas. Mr Macarounas was not a party to those proceedings. DX 207 was, however, tendered without objection and so may well be evidence of the facts found by the learned judge. Indeed, Mr Stoljar relied on one aspect of the Federal Court’s findings.

33 In para 176 of Madgwick J’s judgment, the learned judge said:

“… it may bear examination that financiers should be able to profit from transactions induced by unlawful conduct such as the respondents engaged in here when in fact, whatever the legal position may be, the perpetrators of the unlawful conduct constitute the means and bridge, in non-technical language: the agency, by which the financiers acquire their borrowers.”

34 While that statement resonates with me, with respect, it is of little value to know that a judge in a disqualification of unfair traders case expressed the view that, whatever the legal position, it was inappropriate for the financiers to benefit from the situation of unlawful conduct of the persons from whom they purchased goods at an inflated price, in order to resell them to innocent hard working unsophisticated Australian businessmen.

35 I am trying a case at common law. Any unethical or unscrupulous behaviour of the financiers is almost irrelevant. Although one would have expected the Trade Practices Act to have dealt with shady financiers in the same way as the criminal law has dealt with receivers (stop the fence and you stop the offence!), as will appear hereunder, that Act not only has not dealt with the problem in any comprehensive way, but, as was noted in the Federal Court proceedings referred to above, there is now a division of authority to control these people between the ACCC on the one hand and ASIC under the Australian Securities and Investments Act 2001 (Cth) on the other hand.

36 Realistically, whilst there are cross-claims against the entrepreneurs and the broker, the former have spent the money they were paid by the finance company and one has even been wound up. The focus of the litigation is thus on whether the defendants should pay the plaintiff in accordance with their agreements, or whether the plaintiff, despite having paid out large sums of money to the entrepreneurs is unable to collect because of the operation of some statutory or common law provision.

37 However, if the defence under s 73 of the Trade Practices Act is made out, it may be necessary to examine closely the liability of the supplier as it is claimed (but denied) that the plaintiff will have a joint and several liability with the supplier for misrepresentations and breach of warranty. I will carry out this exercise after dealing with the defendants’ defences and cross-claims against the plaintiff.

38 I now turn to the facts in detail.

39 It was not disputed and indeed was found by Madgwick J to be the case, that it is customary for suppliers of soft drinks and pies etc to supply small retailers with the free loan of a refrigerated display cabinet (in the case of cold beverages) or a pie warmer so long as the retailer resells their product.

40 Each of the defendants gave evidence, which I basically accept, that they considered the present transaction was of the same type, that is, a free oven on loan as part of a deal whereby they sold the supplier’s product. However, each signed a series of papers showing that they knew that a finance company was involved. At least one of them passed the papers he signed on to his accountant who claimed deductions for the rental payments made.

41 In 2002, Mr Hilder, one of the entrepreneurs cold called at various small convenience stores in an endeavour to interest the proprietors in installing his pizza oven.

42 In the case of Mr Dannawi, another of the entrepreneurs, one Maxine Tareha, an associate of Mr Hilder called on Mr Dannawi and asked whether she could demonstrate a pizza oven. Mr Dannawi indicated interest and three days later Ms Tareha returned with an oven and two pizzas.

43 She said that her company, Mama’s Pizza, will supply the pizzas, an oven, a table to put the oven on and a fridge as well as $500 worth of free stock to begin with.

44 Mr Dannawi made it plain that for religious reasons he would not stock nor sell anything with bacon or ham on it.

45 Ms Tareha successfully cooked the pizzas and Mr Dannawi agreed to meet Mr Hilder.

46 At a subsequent meeting between Mr Dannawi, Ms Tareha and Mr Hilder, Mr Hilder repeated: “We will give you an oven and $500 worth of free stock which will include pizza, ribs and garlic bread.” He then said, “We will give you the oven. You are going to rent the oven from us for a six month trial and you should deposit this cheque into your account and the rental payments will be direct debited every month … . We will supply you with the pizza, you can try the oven for 6 months but if you are unhappy with the oven after the 6 months then we will take it back from you and it will not cost you anything.”

47 Mr Hilder then said that if Mr Dannawi was not happy with the oven after 6 months Mr Hilder could arrange for the whole thing to be taken away. He produced a piece of paper which had a heading “Deed of Assignment” and said: “This is a normal Deed of Assignment. If you like you can show it to any solicitor who will tell you that if you sign it then you can get rid of the oven after 6 months if you are not happy with it.”

48 The text of this “Deed of Assignment” read:

“I hereby authorize Mama’s Pizza & Ribs to sell the equipment supplied to me by Poppa’s Pizza and Ribs on the ( )_______, in line with the undertaking made by Poppa’s Pizza and Ribs prior to executing the rental agreement entered into on the above date.
I understand the equipment will be sold for an amount equal to the full amount owing and that this will cease any obligation held by myself with my Financier.”

49 As everyone except the defendants realised, this document was a farce as the equipment was owned by the finance company, there was no market for it and it meant that the defendants continued to pay the finance company without any real recourse after the six months had expired. Mr Dannawi, however, signed the deed on 16 June 2003 and this was after receiving some legal advice.

50 Later, Ms Tareha and Mr Hilder called again on Mr Dannawi and had him sign “the paperwork”. This paperwork, of course, included the agreement to lease the oven and the associated products for 60 months at an exorbitant price.

51 Mr Dannawi had one of the documents endorsed with a statement that as a Muslim he could not be a party to any loan. No one took any notice of this.

52 The “paperwork” included an invoice from The Original Poppa’s Pizza and Ribs to Business & Professional Leasing Pty Ltd for one new pizza system (model: PYROS, Serial No: 8638) for $19,500 + GST and one new slurpy machine for $6,490 + GST, together a total of $28,530.

53 In early January 2003, Mr Dannawi says he received documents through the post from the plaintiff which he did not read, but put them in a safe place.

54 There were a host of “terms and conditions” attached to the rental agreement, clause 19 of which read as follows:

“19. DELINQUENT PAYMENTS (a) Service Charge. Since it would be impractical or extremely difficult to fix Owner’s damages for collecting and accounting for a late payment, if any payment to Owner required herein is not paid on or before the due date, Renter shall pay to Owner an amount equal to five per cent (5%) of any such late payment (but not less than three dollars ($3) or more than one hundred dollars ($100). (b) Interest. Renter shall also pay interest on any such late payment from the due date thereof until the date paid at twenty per cent (20%) per annum.”

55 Clause 20 gave the plaintiff the right on default to terminate the agreement.

56 Clause 27 provided, inter alia:

“This instrument constitutes the entire agreement between Owner and Renter … Renter represents that the Equipment is being rented hereunder for business purposes and agrees that under no circumstances shall this Agreement be construed as a consumer contract … . The Renter acknowledges that no representations and warranties have been given by the Owner other than as appear in the Agreement … .”

57 Those terms and conditions were part of the agreement made with each of the defendants.

58 Mr Dannawi became concerned about a number of aspects of the transaction including the failure by Mama’s Pizza to deliver a supply of pizza products. He then consulted a solicitor. In February 2003, he called at the plaintiff’s office with a friend and discussed the matter with two men, one of whom was introduced to him as a director of the plaintiff and the other as its accountant.

59 Mr Dannawi says that he told the men that he was surprised that, although he had agreed to a 6 month deal, BPL had sent papers relating to 60 months.

60 The director said: “You signed for 60 months and you have to pay us the monthly payments until the agreement finishes. You are the second person who has complained to us about the agreement being for 6 months not 60 months. We have more than fifty agreements like yours … . We have already paid Brett for the oven and slurpy machine $28,000 and you signed and agreed to pay us rental for this equipment.”

61 Mr Dannawi said: “How can you pay him $28,000 for equipment that is not worth over $5,000?” The director replied: “We don’t see the equipment, once you sign and you are happy, we just pay Brett.” “Brett” is one of the names used by Mr Hilder.

62 Mr Nader, the managing director of Blue Robe Petroleum Pty Ltd (Blue Robe) swore that a man called Milan rang him at his Summer Hill store, which his company operates in connection with its service station, and introduced him to the possibility of vending Mama’s Pizza.

63 Mr Nader says that he already had entered into agreements with pie and soft drink suppliers for the installation of warmers and refrigerators in connection with the sale of their products.

64 Shortly afterwards, Milan called at the store and demonstrated the oven. Mr Nader indicated that he was happy to give it a six month trial.

65 About a week later, Brett Hilder called and introduced himself as the owner of Mama’s Pizza. Mr Hilder said that to supply pizza and signage would cost about $600 per month, Mr Nader could try the product for six months and if it didn’t go well, “we will take back everything at no cost to you”.

66 Mr Nader said that at no time did Mr Hilder inform him that he would be signing up for a lease with the plaintiff.

67 A couple of days later, Mr Hilder returned and said that he would be signing Blue Robe up to a rental agreement for a six month trial and handed him a cheque for the first six months’ payments.

68 There were delays in supplying the pizza product and constant apologies from Mr Hilder. Eventually when he rang Mr Hilder’s number, there was no answer.

69 After the six months had expired, Mr Nader found that monthly payments were still being debited from Blue Robe’s account. He complained to Mr Hilder who said he would fix the problem. He never did.

70 The documents signed by Mr Nader included a rental agreement under which Blue Robe agreed to lease two PYROS pizza systems (Nos 4095 and 4096) for 60 months at 60 payments of $1218.13, making a total of $73,087.80.

71 Mr Macarounas swore that he operates a mini supermarket at Alexandria known as “Mr Mac’s Food Store”. He says that prior to the present transaction, he had received from Mrs Mac’s Pies, the free loan of a pie warmer so that he could sell hot pies and a free loan of a machine which heated hot dogs.

72 He says that in March 2003, an Yvette Baron called at his store and introduced him to Mama’s Pizza. She said that she would supply an oven on 6 months’ free trial and that if the store was not happy after the trial, they would take the oven back. They would also supply free advertising.

73 A few days later, Mr Macarounas told Ms Baron that he was happy to give the oven a trial.

74 About two weeks later, Mr Macarounas received documents from the plaintiff. He was concerned about them and telephoned Ms Baron. She told him that the documents were standard and that they had to be completed for the transaction to go ahead.

75 Ms Barron attended the next day and assisted Mr Macarounas in completing the forms.

76 About a week later, Ms Baron introduced Mr Hilder (as George Hilder). He repeated a lot of what Yvette Baron had said and also proffered the Deed of Assignment saying: “ If you are not happy with the product all you have to do is call me or Yvette after six months and sign this document and then I will make arrangements for the oven to be collected from your shop and your obligations to B & P Leasing will cease.”

77 Mr Macarounas noticed that the documents referred to 60 months. He said that Mr der told him that that was merely procedural and the Deed of Assignment confirmed that the obligations would cease if Mr Macarounas was not satisfied.

78 Mr Macarounas became dissatisfied with the product soon after the oven was installed. After a few months, he rang Ms Baron who told him she was no longer working for the company.

79 Mr Macarounas had trouble in contacting Mr Hilder and, at the end of the six month trial found that the oven was not removed and that the finance company continued to take or press for payment.

80 Mr Michael Stupar, the fifth cross-defendant swore two affidavits and was cross-examined.

81 He swore that he was a finance broker and had in the period 21 June 2000 to around October 2003 conducted a finance broking business through a company, Business Acceptance Corporation Pty Ltd.

82 He says that in around October 2002, The Original Mama’s Pizza and Ribs Pty Ltd began referring customers wishing to lease equipment to be supplied by that company.

83 He says that in December 2002, he received a draft rental agreement signed by Mr Dannawi and considered that the plaintiff was the appropriate financier. He had the appropriate documents prepared and handed them to Mr Hilder. Mr Hilder returned the completed documents a few days later and Mr Stupar gave them to a member of the plaintiff’s staff. Mr Stupar received a brokerage fee of $1,560 from the plaintiff for his part in the transaction.

84 Mr Stupar swore also that in late 2002, Mr Hilder gave him a copy of the Deed of Assignment. Mr Hilder said: “BPL have been knocking back quite a few of my deals lately. I wanted to give you something to give them comfort that they will be protected if any of the renters default.” Mr Stupar said that he told Mr Hilder the document did not make sense and was worthless. He later showed it to Mr Joseph, a senior officer of the plaintiff, who also said that the document doesn’t make sense.

85 Annexure A to Mr Hilder’s affidavit of 4 April 2008 is a letter on the letterhead of The Original Mama’s Pizza and Ribs Pty Ltd dated 22 November 2002 addressed to “Mr Michael Stupar, Business & Professional Leasing Pty Ltd, LEICHHARDT NSW” in which Mr Hilder advised that for an “administration fee” of $1,000 he gave an irrevocable undertaking to on-sell any equipment leased by the plaintiff to ensure no losses occur.

86 The defendants contended that Mr Stupar was more than just an independent financial consultant who steered business the plaintiff’s way for a commission.

87 Exhibit AX 278 is a letter of appointment by the plaintiff of Mr Stupar as a consulting broker. Mr Stupar used a business card, to the knowledge of the plaintiff which prominently displayed the logo “B & P Finance”, described him as consultant broker and gave the plaintiff’s address and phone number as his address and phone number as well as an email address which was the same as that of the plaintiff.

88 The evidence was that Mr Stupar had an office in the plaintiff’s building and indeed he prepared cheque requisitions for payments to be effected by the plaintiff as a result of its purchasing goods so that it could enter into the rental agreements. It is clear that Mr Stupar was functioning as an integral part of the plaintiff’s organisation.

89 However, he consistently maintained that although he put a considerable amount of business the plaintiff’s way, he was independent of it and put business (including some of Mr Hilder’s business) to other financiers. This factor would not diminish what I have just said.

90 However, Mr Stupar also had another role. He would put the larger business that came through his hands to other financiers and receive a commission which he would share with the plaintiff.

91 He admitted that he acted as agent for the plaintiff. This admission does not go very far as one needs to find out what sort of agent a person is to be of any real use.

92 There is no doubt that Mr Stupar did discuss the business of Mama’s Pizza with the highest officers of the plaintiff, Mr Holden, the then managing director and Dr Wenkart who is apparently the owner of the majority of its shares.

93 Furthermore, on one occasion (the date is none too clear, but was probably in April 2003), Mr Stupar and another officer of the plaintiff called at a service station at Rozelle, close to their office and sampled a pizza produced by the oven they were selling. They found the product horrible and inedible.

94 Mr Stupar gave evidence that he had a role in bringing about the rental agreements in all three cases. Mr Dannawi, Mr Nader and Mr Macarounas all swore that they had never met Michael Stupar or dealt with any Business Acceptance Corporation Pty Ltd. Mr Stupar agreed that he had never met any of those gentlemen.

95 Mr Stupar admitted that Mr Hilder would frequently turn up at his office in the plaintiff’s building and bring with him completed rental agreements on which Mr Hilder had witnessed the renter’s signature. Mr Stupar said that he never enquired about the execution: he just accepted them from Mr Hilder.

96 Mr Joseph gave evidence for the plaintiff. He said that he is currently a director of the plaintiff and had been such for the previous three or four years. Prior to that he was the plaintiff’s internal accountant.

97 He was cross-examined as to Mr Stupar’s relationship with the plaintiff.

98 He was asked about the letter of 22 November 2002 referred to above. He agreed that he and Mr Stupar had spoken about the irrevocable undertaking and had reached the consensus that it did not make sense.

99 Mr Joseph agreed that he saw Mr Stupar at the plaintiff’s offices on a day to day basis and that Mr Stupar was there every working day.

100 It was put to Mr Joseph that Mr Stupar was regarded by persons dealing with the plaintiff as its representative. He said he did not know that that was true and denied that Mr Stupar represented the plaintiff in its dealings with Mr Hilder. However, he acknowledged that: “he was helping—he was passing documents to us, but I can’t exactly define in what capacity he was acting for us.”

101 Mr Joseph’s attention was directed to the plaintiff’s letter to Mr Dannawi of 10 January 2003. This letter, which enclosed a copy of the rental agreement, was on the plaintiff’s letterhead and was said to be signed by Mr Stupar although it was actually signed on his behalf by another employee, Tracey Low. He saw nothing unusual in this.

102 Mr Joseph said he did not know whether the information in the various rental agreements for Mr Hilder’s deals was put together in consultation between Mr Hilder and Mr Stupar.

103 However, he noted that it was not the plaintiff’s practise to examine the goods or to enquire as to their worth: that was a matter for the hirer.

104 It is clear from the evidence that the plaintiff not only financed the three transactions the subject of the present litigation, but many others as well. The plaintiff answered an enquiry made of it by the ACCC by listing many transactions involving Mr Hilder’s deals. The defendants say that there were 55 such transactions.

105 Mr Hilder gave evidence. His evidence was not that satisfactory and it appeared that there were significant differences between the final version of his evidence and earlier written versions of it.

106 Where Mr Hilder gave evidence contrary to that of the defendants, I preferred the defendants. Their evidence was consistent with the material before Madgwick J. Mr Hilder was without corroboration.

107 Mr Hilder gave evidence of a meeting between himself and Dr Wenkart and Mr Joseph in probably May 2003 in which he denied that there was any six month trial period or that he had paid the renters the first six months’ payments. However, he admitted paying the renters “promotional expenses”. I do not accept the truth of those statements.

108 Generally as to the facts, I accept all the evidence given, save that of Mr Hilder. However, I would discount the evidence of the defendants to some degree because, as I have said, there was confusion in their minds as to what Mr Hilder had represented and what was in the documentation.

109 Both sets of counsel provided written outlines of their submissions.

110 The plaintiff’s case seems to be established by the signed documents subject to one of the defences succeeding. Accordingly, it is necessary to focus on the defences.

111 However, Mr Fernon’s submissions put that the evidence did not establish that Mr Macarounas actually signed his document or that, if he did, it was materially altered after signature.

112 I do not accept these propositions. The defendants may have completed the documents carelessly and Mr Hilder and his assistants may have played too great a role in their completion, but they were processed by the finance company in the ordinary way and copies were returned to the defendants and there was no protest about the documents for months afterwards. It seems to me that the allegations about alteration of the documents come about because the transaction as painted by Mr Hilder stuck in the defendants’ minds rather than the transaction as documented.

113 I noted the defences earlier in these reasons and that three of them need not be further considered. It seems to me that the most efficient way of making a decision in these cases is to consider the remaining defences in logical order in the light of the above facts.

114 These defences are:

(1) the agreement was brought about by the misrepresentations of the entrepreneurs as the plaintiff’s agents;

(2) the plaintiff was a linked credit provider to the entrepreneurs and the defendant relied on s 73 of the Trade Practices Act 1974 (Cth);

(3) the leased goods were not as described nor of merchantable quality as impliedly warranted by statute;

(4) as the agreement had been terminated there was no liability under it save for accrued liabilities;

(5) the plaintiff had failed to mitigate its loss;

(6) part of the claim was bad as claiming a penalty.

115 There was also:

(7) the cross-claim that the agreement had been rescinded or should be rescinded for misrepresentation.

116 After considering those defences, I will need to consider a number of subsidiary and consequential matters which I will do under the following heads:

(8) the cross-claims against the entrepreneurs for misrepresentation;

(9) the claim against the entrepreneurs for breach of condition of merchantable quality;

(10) measure of damages;

(11) whether the plaintiff is entitled to succeed and if so for how much; and

(12) other matters and costs.

117 (1) The focus must be on the entrepreneurs as the plaintiff’s agents. I have used the word “entrepreneurs” loosely as including Mr Hilder, Ms Tareha, Mr Mrkodic, Ms Baron and Mr Stupar.

118 Mr Stupar, as has already been noted, carried the plaintiff’s business card and was admittedly its agent for some purposes. However, none of the defendants ever met Mr Stupar or were aware of his existence and Mr Stupar at no time made any representation to any of them.

119 Accordingly, I must focus on Mr Hilder and his associates.

120 I cannot see evidence which would constitute Mr Hilder or his associates as people who could be said to be making representations on behalf of the finance company. Although Mr Hilder had a close relationship with Mr Stupar and in a sense with the finance company, his role was as a supplier of the product.

121 Furthermore, as Mr Stoljar points out, clause 3 of the rental agreement makes it clear (if anyone ever read it!) that representations by the supplier are not to be held against the financier and clause 27 provides that the agreement is the entire agreement and that no representations or warranties have been given by the plaintiff outside the agreement.

122 Thus, I cannot see how this line of defence can succeed.

123 (2) This is a far more complex matter.

124 Section 73(1) of the Trade Practices Act 1974 (Cth) so far as is relevant, provides that where a corporation as supplier causes goods to be supplied to a corporation which is a linked credit provider and a consumer enters into a contract of lease with that credit provider in respect of those goods and there is a misrepresentation or breach of condition, the supplier and the linked credit provider are jointly and severally liable to the consumer for its damage.

125 Section 73(2) of the Act makes a similar provision where the credit provided is not a linked credit provider however, in such a case, there must have been antecedent negotiations in relation to the contract between the supplier and the consumer and the credit provider did not take physical possession of the goods before they were delivered to the consumer.

126 The remainder of the section deals with procedural matters and defences.

127 There is no doubt that the plaintiff is a linked credit provider within the meaning of the section. A linked credit provider is defined in s73(14) as a credit provider:

“(a) with whom the supplier has a contract, arrangement or understanding relating to -
(i) the supply to the supplier of goods in which the supplier deals;
(ii) the business carried on by the supplier of supplying goods or services; or
(iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services;
(b) to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit;

(c) whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or
(d) with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier;”

128 Mr Stoljar rightly submits that this defence raises a series of issues which he helpfully lists as follows:

(a) Is Poppa’s Pizza a supplier for the purposes of s 73(1)?

(b) Are the defendants “consumers” within the meaning of s 73(1)?

(c) Was there a contract, arrangement or understanding between BPL and Mama’s Pizza for the purposes of s 73(14)(a)?

(d) Was there an arrangement by which Mama’s Pizza regularly referred consumers to BPL for the purposes of s 73(14)(b)?

(e) Has the plaintiff established a defence under s 73(3) to any claim against it under the section?

129 As to (a), Mr Stoljar says that as Poppa’s Pizza was unincorporated, it is not a corporation which is a supplier. This must be correct by definition. Thus, he says, s 73 cannot apply in the Dannawi case.

130 Mr Fernon says that, despite the invoice from Poppa’s Pizza, the whole of the material suggests that the supplier was really The Original Mama’s Pizza and Ribs Pty Ltd, a corporation.

131 Mr Fernon points to the facts that the photos of Mr Dannawi’s shop show Mama’s Pizza signage. The entire pizza system appears to be that of Mama’s Pizza. There was some evidence that Ms Tareha told Mr Dannawi that she worked for Mama’s Pizza and the material handed to Mr Dannawi appears to be identical with the Mama’s Pizza material handed to Messrs Nader and Macarounas.

132 Further, Mr Hilder introduced himself to Mr Dannawi as the owner of the Mama’s Pizza business. Mr Dannawi described his meeting of early February, 2003 as being with people from Mama’s Pizza.

133 However, the principal documents are all against this contention. Ms Tarehas’s business card said she was a sales person for Poppa’s Pizza, the rental agreement showed the supplier as Poppa’s Pizza as did the plaintiff’s documents as to who paid the purchase price.

134 Mr Fernon puts that, even though the immediate supplier was Poppa’s Pizza, the ultimate supplier was Mama’s Pizza, a corporation,and that Mama’s Pizza caused the supply.

135 This submission fails as there is insufficient material to make the necessary finding of fact. Indeed, if one accepts the evidence of Mr Hilder, Poppa’s Pizza was Ms Tareha’s business, and his business, Poppa’s Pizza, was separate. On what Ms Tareha said, Mr Hilder owned Mama’s Pizza and he was her boss.

136 In any event, even if one accepts that under s 4C of the Trade Practices Act and case law (eg Lockhart J in Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1985) 7 FCR 509 at 532, reversed in the High Court sub nom Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162 CLR 395), “supply” is a word of wide import, there are limits. The basic concept is that the person who contracts or arranges with the consumer for the consumer to obtain property in the goods (“the seller”) is the supplier. The route by which the seller obtains the goods, even if it is to cause the manufacturer to deliver them to the consumer, does not make anyone else the supplier. Moreover the Act seems to contemplate that there will only be one supplier.

137 On the evidence, I must conclude on the balance of probabilities that the supplier was Poppa’s Pizza.

138 The supplier in the Blue Robe case and the supplier in the Macarounas case clearly was The Original Mama’s Pizza and Ribs Pty Ltd, a corporation.

139 Mr Fernon put that the contract was one between the plaintiff, a corporation which was the supplier and the defendant. However, with respect, on cannot construe s 73 in such a manner.

140 As to (b), Mr Stoljar says that none of the defendants was a consumer within the meaning of s 4B of the Trade Practices Act because, inter alia, the defendants’ rights to enjoy the goods cost them in excess of $40,000 and the goods were not acquired for personal, domestic or household use or consumption.

141 I do not consider that the price of the goods in the Macarounas case exceeded $40,000. In my view, s 4B(2)(d) of the Act means that one does not take into account the finance charges for leasing the goods, but the price at which the goods could have been obtained by outright purchase. Even using the inflated price of the goods in the present case, the price did not exceed $40,000.

142 However, in the case of Blue Robe, two ovens were purchased. Although the probabilities are that anyone in their right mind would not have paid more than $10,000 for them, the purchase price was documented as $42,900.

143 The question arises as to whether s 4B of the Trade Practices Act refers to the price of each item of goods or the aggregate purchase. Uninstructed one would have thought that the aggregate what has been sold is referred to. However, there are strong arguments the other way.

144 Donald & Heydon, Trade Practices Law, Vol 2 (LBC, 1978) at p 713 say that the structure of s 4B(2) of the Act appears to be that the court looks to see whether there is commercial transaction involving one package or separate items.

145 In the 3rd edition of Taperell, Vermeesch & Harland, Trade Practices and Consumer Protection (Butterworths, 1983) at [1329], the learned authors say that whilst it is easy to split a contract where a purchaser buys a truck valued at $14,000 and other machinery worth $16,000, there is more difficulty in splitting a contract to buy two trucks for $28,000. However, they remark that it is odd that a person ceases to be a consumer just because he or she buys two identical products at the one time.

146 More recently, in the context of s 51C of the Act, the Full Federal Court ruled that courts must take into account all the facts and circumstances before deciding whether aggregation is justified or not: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372.

147 It must also be taken into consideration the fact that under s 4B(3) of the Act a person is presumed to be a consumer unless the contrary is established.

148 No argument was presented by either party on this particular point. If I am not satisfied that the price exceeds $40,000 then the sale must be classed as a consumer sale.

149 In my view, when a court is working out the price one looks at the contract price unless s 4B(2)(c) or (d) applies. Even then, the court must look to see the price at which the goods themselves could have been acquired from the supplier, not acquired on the open market.

150 In the Blue Robe case, when one looks at the whole of the material, two ovens were being purchased for two different sites. There was no discount for quantity. The deal should be considered as two separate transactions. It really makes nonsense in the present type of case to hold that a company making two purchases for different businesses loses its protection under a consumer sale because the paperwork puts the two in the one document.

151 There is some confusion in my mind as to whether what was leased was the oven or some system which included an obligation by Mama’s Pizza to supply product to the defendants to be heated in the oven. It is difficult to see how the system could be the subject of a lease.

152 The rental agreement speaks of a pizza system which must mean something more than the hardware constituted by the oven. The puffery handed out to the potential consumers before entry into the rental agreement says that a pizza system is a package which includes a pizza oven, installation, training and a “starter kit”. The “starter kit” is to include one pizza cutter, one pizza paddle, one sauce bottle, one illuminated menuboard, one external “A” board, one counter top sign and 1000 advertising leaflets.

153 It is difficult to see how this total package could be the subject of a rental agreement. Indeed, the rental agreement seems only to be in respect of the oven. Presumably the remainder of the package was provided as an extra free of charge seeing that a large profit appears to have been made by the supplier as a result of its selling the oven to the plaintiff at an inflated price.

154 Thus I would conclude that the transaction with Blue Robe was a consumer sale.

155 As to (c), in view of my conclusions in relation to Mr Dannawi, I need only consider the cases of Mr Macarounas and Blue Robe.

156 Mr Stoljar put that there was clearly no contract between the plaintiff and Mama’s Pizza, nor does the evidence disclose any arrangement or understanding between them. I consider that this is correct.

157 As to (d), Mr Stoljar puts that there was no evidence of any arrangement under which Mama’s Pizza regularly referred persons to the plaintiff for credit.

158 He puts that unless Mr Stupar is found to be the plaintiff’s agent for some relevant purpose, the defence under s 73 must fail. This is said because the only arrangement or understanding that could have come to pass was one through Mr Stupar.

159 Whether this be so or not, there is material to show that Mr Stupar did act as the plaintiff’s agent for some purposes.

160 Mr Stoljar says that this material falls short of indicating the scope of Mr Stupar’s agency. This is often significant. As the High Court said in Petersen v Moloney (1951) 84 CLR 91, 94, it is insufficient to classify a person as someone’s agent: one must always ask: “agent for what and with what authority?”

161 Mr Stoljar says that the role of Mr Stupar was as an independent broker using the vehicle of his company, Business Acceptance Corporation Pty Ltd.

162 Mr Stoljar put that the authorities showed that there was a real difference between a person who was a broker and one who was an introducer. The former is usually the agent of the hirer and the latter is not an agent of either party, but acts on his or her own behalf; see eg NMFM Property Pty Ltd v Citibank Ltd (2000) 107 FCR 270 at 395-6.

163 Although the applications were channelled through Business Acceptance Corporation Pty Ltd and Mr Stupar, applications with respect to Mr Hilder’s deals were regularly referred to the plaintiff. Furthermore, Mr Stupar was a person within the organisation of the plaintiff. Again, we know that a large number of similar applications were directed to the plaintiff. The inference must be open that there was an arrangement.

164 However, it must be noted that in cases such as the unreported decisions referred to by Lindgren J in NMFM Property Pty Ltd v Citibank Ltd (2000) 107 FCR 270 at 395 [560], there can be circumstances where a person working within the principal’s office may not be considered to be the principal’s agent.

165 The inference of agency is weakened by the evidence, which is uncontradicted, that a number of applications involving Mr Hilder’s deals were directed to other financiers. However, a person can regularly refer applications to financier A notwithstanding that he or she is concurrently referring applications to financiers B and C.

166 I should infer from the evidence that Mr Stupar was more than a mere broker. He was an integral part of the plaintiff’s organisation with some limited, though undefined authority to act for the plaintiff in its finance business. He wrote letters on the plaintiff’s letterhead and steered larger deals through the plaintiff in order to make the plaintiff eligible for commission as well as himself.

167 Should I then infer the appropriate arrangement or understanding?

168 In cross-examination at T57, Mr Stupar acknowledged that he had spoken with Mr Hilder and that for their mutual benefit, applications for credit would be regularly referred to the plaintiff (even though some went elsewhere). Furthermore, the communication by Mr Hilder on 22 November 2002 that he offered an irrevocable undertaking, even though rightly treated by the plaintiff as a nonsense, showed the closeness of the relationship.

169 Thus, in the Macarounas case and in the Blue Robe case, I do draw the inference that there was an arrangement or understanding that credit applications would be referred to the plaintiff.

170 Thus, in those cases, the plaintiff must be considered a linked credit provider.

171 Once the plaintiff has been classed as a linked credit provider with a particular corporate supplier, it must be in that relationship generally. However, that conclusion cannot affect Mr Dannawi as, although he was a consumer, he did not purchase the goods from a corporate supplier.

172 As to (e), I have to consider the applicability of s 73(3) which provides a series of alternative defences to a credit provider.

173 The principal matter put in rebuttal of the inference that the plaintiff was a linked credit provider is that the plaintiff made due enquiry before becoming such a linked credit provider and was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good, vide s 73(3)(b)(i).

174 There is very little evidence of this. Indeed, as I have already related, Mr Hilder says that he called on Mr Holden the then chief executive of the plaintiff and on Dr Wenkart who “owned” the plaintiff and informed them of proposals to buy back the product from the hirer. The proposal was recognised as a farce, yet the plaintiff continued to do business with Mr Hilder and his associates.

175 Indeed, the plaintiff made very little enquiry about anything. Its officers carried out mercantile searches as to the financial standing of the hirer, but otherwise left enquiries to the broker. It even allowed Mr Dannawi’s statement that for religious reasons he would not be involved in a finance deal at interest just to be completely ignored.

176 Furthermore, the plaintiff left the matter as to whether the goods were worth the price which the supplier demanded to the commercial sense of the renter. When one was dealing with small business people with little background this was commercially most unwise. However, the plaintiff seemed to consider that it was always someone else who had responsibility, it could just sit back and take its profit.

177 I cannot see material which would justify a finding that the plaintiff has a defence under s 73(3).

178 What then follows from that finding in the Macarounas case and the Blue Robe case?

179 The defendants put that the plaintiff is thus jointly and severally liable for any consequences of breach of condition or warranty or misrepresentation by the supplier.

180 On the other hand, Mr Stoljar submitted that s 73 does not contemplate such a joint and several liability on the credit provider in respect of a breach by the supplier of s 52 of the Trade Practices Act. Rather, the section contemplates a consumer suffering a loss in relation to the contract (that is the contract between the linked credit provider and the consumer) as a result of a misrepresentation etc.

181 One must then look closely at the alleged and proved misrepresentations.

182 Madgwick J found that there were misrepresentations about a future matter in that if not satisfied after six months, the defendants could require Mama’s Pizza to take back the oven and be released from all future liability and to cancel the lease with any financier.

183 This is one of the misrepresentations pleaded and it is also abundantly clear from the evidence led in the present set of proceedings that it is established.

184 Mr Stoljar puts that the defendants have not established any loss or damage that flowed from the misrepresentation. Such damages, if established, would, he puts, be the amount that the defendants could have expected to earn from a properly functioning oven or pizza system less what they actually earned. The damages are not the instalments of rent payable under the rental agreements.

185 The defendants say that the rental agreements should be set aside for the misrepresentation. However, section 73(1) does not authorise such an order. It only makes the linked credit provider liable for the amount of loss or damage the consumer suffers in relation to the contract with the credit provider.

186 Thus the reliance on s 73 does not provide a defence to the defendants. However, it may provide a set-off under the cross-claim. I will consider this question in more detail in (10) and (11) below.

187 (3) Section 70 of the Trade Practices Act specifies that where there is a supply of goods by a corporation to a consumer by description, there is an implied condition that the goods will correspond with the description. The warranty is not excludable, vide s 68 of the Act.

188 Section 71 of the Trade Practices Act provides that where there is a contract for the supply of goods by a corporation to a consumer, there is an implied condition that the goods are of merchantable quality. Again, by s 68, the warranty is not excludable.

189 For the reasons set out in (2) these implied conditions can only affect the Macarounas and Blue Robe cases.

190 As to failure to meet the description, the only material as to whether there was a breach of condition is in the Macarounas case. Mr Macarounas was to receive a new Wilco oven. He says that an oven was installed in his shop, but that a week later, this was removed and a Pyros oven (No 4027) was substituted which did not appear to be new.

191 There the matter was left.

192 I do not consider that there is sufficient material to find a breach of the condition.

193 Mr Stoljar then says that the defendants have failed to call any or alternatively, any sufficient, evidence to establish breach of the condition of merchantable quality. He says that there was no evidence as to what was the required temperature which the ovens must reach to heat the food properly, nor whether the ovens “retained” their temperature. There was no expert evidence as to compliance with health regulations. Indeed, the principal complaint appeared to be the unreliability of the delivery of stock.

194 Further, even if there was a breach, there was no evidence to show that the defendants had suffered any compensable loss.

195 The principal affidavit of each of the defendants does not mention any problems with the quality of the oven.

196 It is odd that I was not given more evidence on this aspect of the case. There was some material that tended to show that the goods were not of merchantable quality. Each of the defendants was unhappy with the oven and wished to return it after the six month trial period. However, this may be because they became aware of the fact that they then had to pay for its retention.

197 Again, the visit of Mr Stupar to Rozelle shows that the ovens were not capable of preparing a pizza able to be eaten with enjoyment.

198 However, the onus is on the defendants to show breach and I do not consider that the evidence that they have presented is sufficient to do so.

199 (4) In each case the contract was terminated for breach. This means that the contractual regime ceased to govern the rights of the parties after the date of termination. Thus, the liability of the defendants was fixed and the provisions for continuing interest ceased to be effective.

200 However, the amount due on the date of termination would be subject to section 100 of the Civil Procedure Act 2005 which empowers the court to add interest at such rate as it considers appropriate.

201 The general approach of a court to this issue is to allow the real loss which may be measured by the contract of the parties, in default the court rate.

202 In the instant case, there is no material to suggest that the 20%+ rate referred to in cl 19 of the rental agreement has any relation to the cost to the plaintiff of being out of its money.

203 Mr Stoljar says that the 20% must be considered to be a genuine pre-estimate of damage and is to be measured against the 21% rate which was used to calculate rental.

204 There are two answers to this submission. First, the 21% was not a per annum rate and has no relation to annual interest. Secondly, in the light of the court rate and common knowledge of the prevailing rates in the community, 20% is just too high a rate to be a genuine pre-estimate of damage.

205 Thus the court rate of 10% is to be allowed from the date of termination on the amount properly owed under the rental agreement on that date.

206 (5) The law clearly is that the onus is on the defendants to prove that the plaintiff has failed to mitigate their loss and to demonstrate the extent to which there has been a failure to mitigate: Watts v Rake (1960) 108 CLR 158, 159; TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 158; Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254, 267.

207 It was held by Buss JA in Luxer Holdings at 237 [61] that:

“Where the assessment of damages relates to a commercial undertaking, an evaluation of whether the plaintiff has taken reasonable steps to mitigate damage relates to what the plaintiff would do ‘in the ordinary course of business’ “.

His Honour based his statement on Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9.

208 There is no evidence in the present case on which a finding of failure to mitigate could be based. The clear evidence is that second hand pizza ovens of the type in question were almost impossible to sell. Indeed, the way the entrepreneurs had exploited and poisoned the market with their sale of new ovens which failed to perform in itself virtually destroyed any market for second hand ovens.

209 (6) As to penalty, I have already considered the matters arising under head (4) and found that 20% is penalty interest. However, this does not avoid the obligation to pay interest, it merely reduces the obligation to the proper rate of interest, namely 10%.

210 (7) The cross-claim that the rental agreement or the whole package of agreements had been rescinded or should be rescinded for misrepresentation cannot succeed.

211 Although, I accept the evidence of each of the defendants that the representations were relied on by them when making their decisions to enter into the rental agreements, I cannot see how, in the peculiar circumstances of the instant case, this can lead to rescission.

212 The remedy sought in respect to the misrepresentations is rescission. The problem here is, “rescission of what?”

213 There cannot be rescission of the rental agreement because the plaintiff did not make any misrepresentation by itself or its agent and s 73 does not extend to empowering the court to rescind the agreement between the consumer and the linked credit provider.

214 There cannot be rescission between the defendants and the entrepreneurs/suppliers as restitution in integrum is not possible.

215 Accordingly the significance of the misrepresentations is that they give rise to damages under s 82 of the Trade Practices Act. This is considered in (10) below.

216 (8) There is abundant evidence of misrepresentation. Although Mr Hilder denies it, the evidence clearly shows that in a background of shopkeepers who received free loans of pie heaters and refrigerators in order for them to sell pies and soft drinks, an invitation to have a pizza oven on six months’ trial must have been considered to be in the same situation as the pie heaters and refrigerators.

217 The people concerned were people whose English was not as good as most Australians and who had only experienced business at a low level. They were misled by sales talk into thinking that their liability was virtually nil if the oven was rejected after the six month trial. In fact, they not only found themselves in the position of having paid an unrealistic price for the oven, they were also liable to pay inflated instalments over a five year period with additional interest at 25% (20% + “administration charge”) for late payment.

218 As noted earlier, the representation was as to a future matter. As against Mama’s Pizza, for the reasons set out in Madgwick J’s judgment, Mama’s Pizza is liable.

219 However, as Madgwick J points out in [146] and following it does not necessarily follow that the individual entrepreneurs are also liable for the loss under s 75B of the Trade Practices Act.

220 Under s 51A(2) of the Trade Practices Act, where there is a representation as to a future matter, a corporation, unless it adduces evidence to the contrary is deemed not to have had reasonable grounds for making the representation.

221 However, s 51A(2) does not apply to individuals. Furthermore, as Dowsett J held in ACCC v Michigan Group Pty Ltd [2002] FCA 1439 at [303] (a passage followed by Madgwick J at [149]), in order to sheet home personal accessorial liability to the natural persons being the entrepreneurs, the natural person bears no onus of proof. Rather, the defendants must:

“demonstrate that such a person:


* knew that the representation was made, and either

* knew that it was misleading; or

*knew that the corporation had no reasonable grounds for making it.”

222 In the instant case, the evidence shows that the test laid down by Dowsett J was fulfilled. As to Mr Mrkodic or Ms Baron, the evidence does not go so far.

223 Accordingly, there should be an order for damages against Mr Hilder and Mama’s Pizza only.

224 (9) I now need to consider the claim against the entrepreneurs for breach of condition of merchantable quality.

225 I have already dealt with this allegation with respect to the plaintiff and found the evidence was insufficient to establish liability. I must reach the same conclusion here.

226 (10) The measure of damages must be the loss suffered by each of the defendants because they entered into the arrangements which has caused them loss.

227 The result of reliance on the misrepresentation was that, instead of being relieved from all liability at the end of the six month trial period, the defendants were liable to pay the plaintiff for five years.

228 Had the defendants made any profits from the ovens whilst they were held for the six months or afterwards, any such profits must be deducted from the overall loss.

229 There was virtually no evidence on this issue. However, the general background material which was virtually unchallenged was that for various reasons, the venture was a failure. Whether this was because the advertising material was not supplied or that there was a failure to supply pizza base etc or because the ovens did not function properly does not matter.

230 The balance of probabilities is that no profits were made by the defendants.

231 The defendants’ loss is thus the amount payable to the plaintiff.

232 (11) As a result of the above consideration, the plaintiff is entitled to succeed against each defendant. However, in the cases of Blue Robe Macarounas, this is subject to set off.

233 The amount for the nominal verdict for the plaintiff is the amount properly owing as at the date of termination of each contract plus interest at 10% from that date until the date of judgment.

234 The amount of the set off is the amount of the loss which the consumer suffered in relation to its contract with the linked credit provider.

235 Mr Fernon says that this is the same sum as is found to be due by Mr Hilder.

236 Mr Stoljar says that the loss is the profits that might have been gained had the ovens functioned as promised.

237 This, with respect, does not relate to the basic misrepresentation that the ovens would be returned with no ongoing liability.

238 The plaintiff was aware of this as Mr Hilder explained what he was saying about buy backs to representatives of the plaintiff at its highest echelons.

239 Accordingly, the damages are the same as lie against Mr Hilder.

240 The net result is that in the case of Blue Robe and Macarounas there is nothing owing to the plaintiff and there should be a verdict for the defendants.

241 (12) Other matters and costs. It follows from the above that the defendants are entitled to succeed against each of Mr Hilder and Mama’s Pizza for a sum calculated in accordance with the above reasoning. However, apart from any future claim by the plaintiff against Mr Hilder and/or Mama’s Pizza, this is academic as it is a joint liability with the plaintiff and the defendants can only get paid once.

242 Of course, in the case of Mama’s Pizza, in liquidation, the order should be subject to any condition of the leave to sue that company.

243 Unfortunately for Mr Dannawi, his supplier was not a corporation. That chance event means that he is not a consumer and thus has not the set off available to the other defendants. It may seem bizarre that when all the other facts in the case point in the one direction, the other two defendants succeed and there must be a verdict for the plaintiff against Mr Dannawi calculated as noted above.

244 It is doubtless of cold comfort to Mr Dannawi to know that the reason for restricting suppliers to corporations is because of a constitutional restriction on the powers of the Federal Government and that there is no corresponding provision in the NSW Fair Trading Act 1987 to s 73 of the Trade Practices Act.

245 As to costs, the issues between the plaintiff and Blue Robe and Mr Macarounas, the defendants succeeded and should get their costs. The plaintiff has succeeded as against Mr Dannawi, but only for the reason that his supplier was not a corporation. The plaintiff is prima facie entitled to its costs against Mr Dannawi.

246 However, costs, under s 98 of the Civil Procedure Act 2005 are in the discretion of the court.

247 It is significant that all three cases were heard together and, with limited exceptions, raised the same issues and the plaintiff, was only successful against one of the defendants and then on a technicality.

248 In my view, the proper order for costs is that the plaintiff pay two-thirds of the defendants’ costs.

249 As to the cross-claims, the defendants have had success against Mama’s Pizza and Mr Hilder and should have their costs of the cross-claims as against those people. In the case of Mama’s Pizza, in liquidation, the order should be subject to any condition of the leave to sue that company.

250 Mr Stupar has succeeded and should receive his costs as a self represented litigant.

251 There should be no order as to costs as with respect to Ms Baron and Mr Mrkodic who took no part in the pleadings or the hearing.

252 There may be some difficulties in formulating the final orders. Thus, I will merely publish these reasons and stand the matters over to 9.30am on Tuesday 16 September 2008 for short minutes to be brought in.

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